Export companies set for early boost from resumption of Saudi-Qatari trade

Export companies set for early boost from resumption of Saudi-Qatari trade
A man walks past the headquarters of Saudi Basic Industries Corp. (SABIC) in Riyadh, October 27, 2013. (Reuters)
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Updated 07 January 2021

Export companies set for early boost from resumption of Saudi-Qatari trade

Export companies set for early boost from resumption of Saudi-Qatari trade
  • Aviation, construction, food companies to see biggest short-term benefits: Business experts
  • Key Saudi gainers will be the likes of Saudia Dairy and Foodstuff Co. (SADAFCO) and Saudi Basic Industries Corp. (SABIC)

RIYADH: The normalization of Saudi-Qatari diplomatic and trade relations will have benefits for both countries, especially for the aviation industry and Saudi export-focused sectors, business experts claim.

Dr. Saleh Al-Sultan, a writer and former chief economist at the Ministry of Finance, told Arab News: “The Gulf cooperation was undermined in the previous few years but the relations between Saudi Arabia and other Gulf states and Qatar are back to normal now, which means the ties between all states will be stronger than ever.

“Before the boycott, Saudi Arabia and Qatar had many mutual economic activities but collaboration stopped. We hope that the relations return to normalcy and ties become deeper and stronger. Besides, increasing the volume of economic exchange and transactions will bring positive results to Gulf states,” he said.

Abdulrahman Al-Otaishan, chairman of the Saudi-Bahraini Business Council and former chairman of the Saudi-Qatari Business Council, pointed out the importance of economic integration between all Gulf states and said that over the past four decades the Gulf Cooperation Council (GCC) had played a pivotal role in the region.

“The easy movement of Gulf nationals from one state to another and the facilitation of money movement have brought about a lot of benefits to all states.

“Saudi Arabia might have the largest impact and weight because of its geographical, historical, religious, and economic importance. Gulf states share many things in common.

“The current summit comes at an exceptional time in light of the coronavirus disease (COVID-19) pandemic. It’s important to end all differences,” he added.

Al-Otaishan noted the importance of bilateral relations and the land route connecting Saudi Arabia and Qatar and said that any disruption would have a negative impact on trade between both countries. He highlighted the Saudi companies that had contributed to Qatari projects and the quality of their produce.

Some of the key Saudi gainers will be the likes of Saudia Dairy and Foodstuff Co. (SADAFCO), mining and metals company Al-Samaani Factory for Metal Industries Co., and Saudi Basic Industries Corp. (SABIC), the world’s fourth-largest petrochemicals firm, all of whom are likely to benefit from the reopening of the border with Qatar.

Mazen Al-Sudairi, head of research at Riyadh-based financial services company Al Rajhi Capital, told Arab News: “It is positive but not material. It would be beneficial for export-oriented companies in the construction space and probably some companies such as Almarai. However, this is already priced in and hence not much of a surprise.”

According to research by Saudi financial news portal Argaam, Riyadh-based diary firm Almarai will benefit as it lost 5 percent of its sales when the Qatar border shut. Similarly, SADAFCO lost 3 percent of its annual sales when the dispute began in June 2017.

Riyadh’s Saudi Vitrified Clay Pipe Co. (SVCP) saw a drop in its sales when the borders shut and trading analysis by Argaam showed it was likely to be another winner as a result of the resolution of tensions between Doha and its neighbors.

In Qatar, one of the main benefactors will be Qatar National Bank. The GCC’s biggest bank, the Qatari lender had opened a branch in Riyadh in May 2017, just a month before the Kingdom broke off diplomatic ties with Qatar.

An obvious benefactor of the opening up of airspace will undoubtedly be state-owned national carrier Qatar Airways.

Joice Mathew, senior research manager at United Securities, told Reuters: “We should see significant cost saving for some Qatari companies on the fuel and logistics side.

“With a full removal of the blockade, Qatar Airways stands to benefit significantly on fuel cost, which would help them in offering competitive prices to travelers.”

The aviation benefits will also be felt on the Saudi side, as the Kingdom’s carriers begin to restart international flights.

“Qatar Airways and Saudi Arabian carriers like Saudia, flynas, and flyadeal will be able to resume operations, even on a limited basis, with a bigger network and by extension, a bigger avenue to more revenue,” Saj Ahmad, a London-based aviation analyst at StrategicAero Research, told Arab News.

However, Ahmad said the full benefits for the region’s airlines would take time to materialize and that there was “no boon on the horizon any time soon. That won’t emerge until such time a significant portion of the globe is immunized with the COVID-19 vaccines.”

Hong Kong-based Krisjanis Krustins, director of sovereign ratings at Fitch Ratings, said the normalization of economic and trade relations would “help Qatar’s battered non-oil economy.” But he warned that Doha’s high public-sector debt would remain a drag on the country’s AA minus/stable sovereign rating.

Krustins predicted Doha’s government debt-to-GDP ratio would hit 76 percent, up from 60 percent in 2017 when the dispute began, but was optimistic that the latest news would help it to balance its books.

“Qatar will post a roughly balanced budget in 2020. The 2021 budget plans for a deficit of 6 percent of GDP excluding investment income, at an oil price of $40 per barrel. We see this as broadly realistic,” he added.

Sports fans will also be rejoicing at the news, with the Qatar FIFA World Cup set to be staged in the country in 2022.

Alexander Perjessy, senior analyst at Moody’s, told Reuters that the international football tournament “would unlikely be a resoundingly successful event if the regional football fans, especially from the most populous Saudi Arabia, were unable to attend.”


Fahad Al-Mubarak appointed as new Saudi central bank governor

Fahad Al-Mubarak appointed as new Saudi central bank governor
Updated 4 min 31 sec ago

Fahad Al-Mubarak appointed as new Saudi central bank governor

Fahad Al-Mubarak appointed as new Saudi central bank governor
  • He also served as chairman of the Saudi stock exchange

LONDON: Saudi Arabia's king appointed Fahad Al-Mubarak as central bank governor, his second stint in one of the most sensitive positions in the kingdom replacing Ahmed al-Kholifey, a decree carried on state media on Sunday said.

Mubarak, who had helmed the Saudi Central Bank (SAMA) from 2011-2016, was previously chairman and managing director of Morgan Stanley, Saudi Arabia, and has also served as chairman of the Saudi stock exchange.
He was succeeded as governor in 2016 by Kholifey, who guided SAMA during a sharp economic contraction last year caused by lower crude prices and COVID-19. Kholifey will become an adviser at the royal court, the decree said.
SAMA last March launched a 50-billion-riyal ($13.3 billion) stimulus package to support the private sector in the world's top oil exporter. In June, it announced the injection of another 50 billion riyals into the banking sector to support liquidity.
In September, as coronavirus restrictions eased and the Saudi economy showed early signs of recovery, Kholifey said he was confident in the country's financial stability but that caution was needed in decreasing monetary support to avoid a deterioration of assets.
The central bank last year transferred $40 billion to the sovereign wealth fund, the Public Investment Fund, to boost its firepower in overseas investments. That contributed to a sharp drop in Saudi central bank foreign assets when the Saudi economy was being hit hard by the coronavirus pandemic.
Kholifey oversaw the Saudi banking sector at a critical time for Saudi Arabia, as banks' liquidity suffered after the 2014-2015 oil price crash.
Under his guidance in 2016 the central bank introduced new monetary tools to lower market interest rates, which had soared amid shrunken flows of petrodollars.
Liquidity in the Saudi banking system also improved because Riyadh that year started borrowing tens of billions of dollars in the overseas markets, reducing pressure on Saudi banks.